What is Past Adjustment?
There are definite situations in an enterprise when, due to some consequence like an omission of a entry, a mistake in accounting, change in profit sharing ratio (PSR) with retroactive effect, etc., Different adjustments in 2 distinct cases are :
- When there is a single error: Under this scenario, an adjustment table is prepared and an adjusting journal entry is outlined to correct the error
- When there are multiple errors: In this scenario, the enterprise outlines the Profit and Loss Appropriation, which is a part of final a/c, in working notes along with the specific table. Subsequently, necessary changes will be made in the journal entry
Occasionally, a few exclusions or errors in the maintaining of transactions or the preparation of statements are initiated after the final a/c have been outlined and the profits allocated among the partners. The exclusion may be in respect of interest on drawings, interest on capitals, partner’s salary, interest on partners’ loan, outstanding expenses or partner’s commission. There may be some differences in the provisions of partnership deed or structure of accounting possessing influence with retroactive effect. All these acts of exclusion and commission require adjustments for rectification of their influence. Instead of modifying old a/c, required adjustments can be made either :
- Through ‘Profit and Loss Adjustment A/c’
- Directly in the capital A/c of the particular partners
The above mentioned is the concept that is explained in detail about Past Adjustments for the class 12 students. To know more, stay tuned to BYJU’S.